The Debt Respite Scheme (Breathing Space) comes into force on 4 May 2021. This allows individuals to obtain “breathing space” from creditors under certain circumstances.
A breathing space can be obtained if:
- An individual cannot or is unlikely to be able to repay their debts and a debt adviser considers a breathing space appropriate – the standard breathing space
- An approved Mental Health Professional certifies that a person is receiving mental health crisis treatment – the mental health breathing space
If a business is owed money by an individual, they may receive notice that an individual has the benefit of breathing space. Whilst this is in force, that business will be unable to take certain steps (i.e. enforcement/ recovery action, contacting the debtor to request payment and charging interest/ fees/ penalties/ charges during the breathing space).
Whilst technically the debtor is still required to pay their debts during this time, a creditor will be unable to enforce, which for corporates transacting with individuals may impact cashflow if the debtor book is significant. Failure to pay liabilities may result in the debt adviser cancelling the breathing space at the mid-way review (which takes place around days 25-30). After then, there’s not much that a creditor can do to ensure they continue to receive payment (and only limited grounds for the breathing space to be cancelled).
In addition, if the debtor ledger has been sold and/or a debt collector is instructed, the purchaser/debt collector must be notified of a breathing space as soon as possible in circumstances where the creditor is notified of it. Failure to do so could result in liability for any losses the debtor or the assigned creditor have as a result.
Insolvency practitioners, in particular, should therefore ensure that appropriate systems are in place to enable timely compliance with such notifications and be aware that recoveries in the estate may be impacted by delayed receipt.
For more information, see the government guidance.